Gloves off as mobile game developers wage Christmas war

SAN FRANCISCO Dec 20 The annual no-holds-barred
Christmas holiday slugfest between mobile game developers has a
new twist this year: marketing and user-acquisition costs will
likely hit an all-time high and surpass any revenue earned over
the festive season.

The cost of getting new users through paid-for click-through
ads on mobile phone apps and Facebook is skyrocketing.

Industry executives say there are more mobile games than
ever aspiring to become the next "Candy Crush Saga" or "Clash of
Clans" and developers are spending to get there.

That poses a challenge for thousands of developers ranging
from San Francisco-based Glu Mobile to independent
studios hoping to follow in the footsteps of outfits like
Supercell and King, analysts say.

Spending peaks globally during the holidays, when developers
pull out the stops to try and draw in many receiving Apple
or Google Android devices on Christmas
morning.

This time round, heightened competition could double or
triple the amount spent on marketing cost per install or CPI,
wiping out typical revenue gains of up to 200 percent.

Most developers rely on click-through ads paid

Developers hope to recover costs through downloads and
in-game purchases of virtual goods. This year, costs per install
"will be about 4 bucks on average and that's twice of what the
games will actually make," said Misha Lyalin, CEO of mobile game
company ZeptoLab. "It's not like everybody is going to die, but
there will be some losers."

Industry dynamics have shifted in the past year. The
emergence of a handful of dominant players like King (Candy
Crush Saga) and Supercell (Clash of Clans), in which Japan's
Softbank is invested, has driven up marketing costs,
said Joost van Dreunen, CEO of research firm SuperData.

"You have a lot of companies trying to make it to the top 10
and the incumbents are trying to maintain their position before
the holidays, and what that effectively does is it shoots
cost-per-install costs through the roof," van Dreunen said.

CPI -- the cost paid per download to acquire users each time
they click on a mobile ad-- was less than $2 last Christmas. It
will range between $4 to $7 this year in the United States,
according to SuperData.

Developers currently rely on a small number of
user-acquisition platforms like Chartboost that support
click-through ads. Those platforms offer limited reach and
intense bidding for spots quickly drives prices higher.

SURVIVAL OF THE FITTEST

To be sure, marketing costs should stabilize after Christmas
and the mobile gaming market continues to expand at a torrid
pace: analysts expect 40 percent growth in 2013 to $14 billion.

But the cost of getting games infront of players far
outpaces that expansion.

"A lot of people are going to fail and there's going to be
more and more consolidation," said Andrew Green, who heads
business operations at game studio TinyCo, which is backed by
Andreessen Horowitz and Pinnacle Ventures.

"We can find ways to rise above the clutter without facing
daunting CPIs,.....(like) creating a lot of content so we can
(have) a very serious push after the holidays when the price
points come down," said Tap Lab CEO Dave Bisceglia.

Others like Glu Mobile are turning to emergent platforms for
game-specific ads like Facebook, placing ads in newsfeeds. With
over a billion users, the social network offers much wider
coverage and helps developers target specific demographics.

"If next year you don't see the introduction of a new
channel like a Twitter or a YouTube or someone like that, you
might see CPI costs really jump," says Chris Akhavan, Glu's
president of publishing.

Those with deeper pockets focus on brand building. ZeptoLab
grew "Cut the Rope" -- in which players feed candy to a green
monster -- to 400 million downloads in three years with constant
updates, TV spots and tie-ups with Burger King and McDonalds.

"The whole chart manipulation game is becoming a thing of
the past," Akhavan said. "For the savvier and more successful
companies in this space, it's become all about ... trying to
turn an ROI (return on investment) on your ad spend."

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